Stock Market Update: Why Most Traders Feel Behind
This system has a compound annual return of 21%, a max historical drawdown of 28% and is extremely simple and robust. The equity curve looks good apart from a couple of reasonable (but expected) drawdowns.
What the equity curve doesn’t show you is how much negative feedback you would get trading this system (and any system – this is one of the biggest reasons why trading is so hard). Analysing the equity curve in excel for this system we can see:
- 42% of trading days you lose money
- 85% of days are in some level of drawdown from the previous all time high
- The longest time between equity highs is 805 trading days
Now this system is perfectly good, it makes solid returns, it beats the market, but these three bullet points tell you why it is so hard to be a trader – that is a lot of negative feedback!
One of the best things you can do to improve your confidence is to analyse your system’s equity curves like this so that you know what is actually happening on the day to day level.
Just looking at the pretty upward sloping equity curve does not show you the discomfort that you need to be ready for. Plus, if you are not ready for it then the system will feel very uncomfortable to trade.
Trading is HARD, but you can give yourself the advantage by understanding exactly what the day to day will look like before launching a new system.
